Nobody enjoys paying taxes, but filing taxes is especially inconvenient for gig workers. Unlike most employees, they are required to keep track of their own income and make quarterly estimated payments as independent contractors, and they pay to double the tax rate for Social Security and Medicare because the companies they drive for do not match their contributions.
So far, that hasn’t stopped 16% of Americans – nearly 53 million people – from earning money on gig platforms in 2021, because only gig workers earning $20,000 or more per year are required to report taxes. However, a change is on the way.
An amendment to the tax code buried in the stimulus bill signed by President Joe Biden in March will place even more of the tax reporting burden on gig workers, potentially causing problems for third-party delivery services that rely on independent contractors to cover the last mile.
The new tax reporting standards, which go into effect next month, will reduce the tax reporting threshold on electronic payments from $20,000 to $600. Because gig workers are typically paid electronically by the apps for which they work, those earning $600 or more per year must now file their own taxes. And this is significant because millions of gig workers did not meet the previous threshold but now do.
Previously, only gig workers who made $20,000 or more on 200 transactions per year received a Form 1099-K, which detailed their gross income from gig platforms. However, beginning in January, employers must send the form to employees who earn $600 or more per year, regardless of the number of transactions.
Sanish Mondkar, CEO and founder of workforce management platform Legion, told Modern Shipper, “Some of those apps provide good tools to sort of have a history of all the work that you’ve done and things like that.” “However, this imposes some additional work that employees and employers will have to do in order to actually report the right things when it comes to filing taxes.”
Gig companies, for the most part, have slammed the new reporting standards, fearing that they will increase their costs and drive away customers. TechNet, a trade group comprised of Grubhub, DoorDash, Lyft, Postmates, and Uber, issued a statement on behalf of its members calling the changes “fly-by-night taxation of gig workers and small business owners.”
While Mondkar believes that gig platform users will continue to use the platforms, he acknowledges that the new standards may turn away some gig workers who use the services sparingly.
“And that’s a lot of people because that’s what the service promised –– it’s not a job, it’s a side hustle.” It’s a job. “You can turn it on and off, you don’t have to commit to it long term, and so on,” he explained.
However, he believes that the new tax reporting standards bring gig work closer to full-time employment while maintaining its low barrier to entry. And he predicts that as long as gig work is as simple as downloading an app and pressing a few buttons, the majority of gig workers will continue to find the platforms appealing.
“These are jobs –– real jobs –– and there are millions of people who work in them.” And I believe we are seeing a gradual shift in them incorporating all of the considerations that any job has in terms of employer obligations, employee obligations, and the like,” Mondkar said. “I personally don’t think it will fundamentally change the attractiveness of the job in the long run, because the ease of signing up for and carrying out a job still trumps any taxation type of implication.”
